Gulf markets rally but jury out on prospects

Dubai, October 13, 2008

Gulf Arab markets rallied on Monday, on revived investor faith in government measures to boost financial stability, but analysts said it was too early to call an end to weeks of losses on regional bourses.

Gulf indices leapt on a global upswing that saw world stocks jump after policymakers unveiled new and drastic measures to rescue stricken banks, helping turn around bleak sentiment.

Britain bought into leading banks while Australia and New Zealand guaranteed bank deposits. Other countries, including Germany, France and Italy, are expected to unveil similar moves.

In the Gulf, Qatar took the most dramatic step yet in the region, saying its sovereign wealth fund will spend $5.3 billion to buy up to 20 per cent of listed banks' capital.

That sent stocks higher in Qatar and Dubai, where the UAE vowed a day earlier to guarantee bank deposits and interbank lending for three years, including those of foreign banks with core operations in the country.

The Dubai index ended with its biggest one-day gain ever, jumping 10.53 per cent as four stocks hit the 15-percent cap on daily gains. Meanwhile, in Qatar, the index rose 8.45 percent as the sovereign wealth fund's plans sent bank stocks higher.

The positive sentiment buoyed other markets. The Abu Dhabi index rose 6.92 percent, Oman was up 5.18 percent and Bahrain edged up 0.82 per cent. Kuwait was the lone decliner on Monday, slipping 0.26 per cent.

'I think, overall, we may be leaving the bottom of the market,' said Hamood Abdulla Al-Yasi, general manager at Emirates International Securities. The Saudi bourse, the Arab world's biggest market, closed up 9.47 percent, its best finish since October 7.

'Sama's moves restored investors' confidence that authorities are finally doing something and the right thing to help the bourse,' said Abdulhamid al-Amri, a member of the Saudi Economic Association, a semi-official think tank based in Riyadh.

Amri said a raft of IPOs approved by the bourse regulator over the past 18 months, which coincided with steps by Sama that have tightened liquidity, had been 'choking the market'.

Despite the positive session, some analysts were unconvinced that the worst of the market meltdown was over. 'Nobody knows if this is the beginning or the end,' said Amro Motasim, chief trader at Ahli Bank in Doha.

'It may (run for) one or two days. Nothing has changed. The situation is bad, you've foreign institutions that are still selling. This might end up being a dead cat bounce.'

Motasim said the Qatari decision to buy listed banks' capital was both good and bad for the market. 'They're injecting liquidity which is good, but the long-term effect is it will create share dilution,' he said, noting that the move also diverted investment away from other sectors, such as services and insurance, which may also need funds.

'The sentiment was always the problem, not the fundamentals,' she said. 'But we need it to be more solid. We're seeing day traders coming back, we didn't see the mid- and long-term investors. We need to see them going back into the market.'-Reuters